IP Protection in China Is Finally Changing. Or So It Seems

One of the stranger situations Michelle Lee, Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office, has ever confronted involved an Apple store in China. At least it seemed like an Apple store. “Everything in the store—the inventory inside, the merchandise, the t-shirts the workers were wearing, the awning, the logos, everything was completely counterfeit,” she said at Fortune’s Most Powerful Women Summit on Tuesday in Laguna Niguel, California.

Though the incident reflects intellectual property theft at its most extreme, the episode represents one of the most persistent challenges American businesses face in foreign markets, and particularly in China, the world’s second largest economy. It’s also a matter that Lee focuses much attention on, and it’s a priority for the Obama administration. The White House wants “all companies [to] feel comfortable shipping their products and services overseas and not having them stolen the minute they land at foreign soil,” Lee said. Given the U.S.’s $200 billion in exports annually, she said there’s a focus on ensuring goods are “protected, respected, and if infringed on or stolen, there are consequences to disincentivize it.”

Despite the sprouting of knock-off Apple stores, Lee, who meets regularly with global leaders on the issue, sees signs of a changing IP regime in China. She met with Wang Yang, one of the nation’s Vice Premiers—the first ever such meeting in the history of U.S.-China relations. And in another first, American officials are hearing their Chinese counterparts talking about increasing IP protections and providing damages and remedies to companies whose rights are infringed.

“For China, this is such an important issue. They don’t want to be the low-cost manufacturer of other countries’ inventions; competing on low-wage labor. They want to be the innovative country. To do that, you need to respect IP rights. This is a matter of national self-interest for them,” said Lee.

China is already making changes to its IP laws and has set up a new national court system to handle cases—a step taken to protect businesses from being subject to “local provincialism,” she said.

U.S. officials are currently reviewing the new laws, training Chinese judges, and raising any IP violations they learn of in bilateral talks with the country. Lee said all the motions are promising but is far from declaring it great progress.

“Time will tell. Actions speak louder than words, but they’ve got the laws on the books,” said Lee. “The question is: how will they apply these laws in new courts and will they apply them equitably to both foreign and domestic participants?”